More Evidence Raising the Minimum Wage Could Hurt More Than it Helps
Broken promises are nothing new in politics, but the worst are those promises that actual hurt the very people whom the promises were intended to help. Increasing minimum wage is popular with voters but the truth is it often leads to those who need a job the most either losing their job or finding one in the first place much more difficult. Just this week, a lawmaker in South Carolina and the Governor of Pennsylvania renewed pushes for an increase in their respective states’ minimum wages. Governor Wolf called for an increase from the state’s current $7.25 minimum wage to $15 per hour in his recent budget address. Meanwhile, Representative Gilda Cobb-Hunter proposes raising South Carolina’s minimum wage from its current $7.25 per hour to $10.10 per hour. Proposals for increasing the minimum wage are increasingly popular on the state level, but recent economic evidence suggests that these types of increases would only hurt the people that they are intended to help.
A recent study, released by the National Bureau of Economic Research (NBER) in December of last year, provided overwhelming evidence of the negative impact of raising minimum wage on low-skilled workers’ employment.In the working paper titled “The Minimum Wage And The Great Recession: Evidence From The Current Population Survey,” author Jeffrey Clemens finds workers who were “bound” by minimum wage increases saw their employment and income prospects significantly diminished during the Great Recession on both the national and state levels, even considering the deteriorating housing condition.
Between 2006 and 2012, nationwide, the average effective minimum wage rose from $5.82 to $7.55, resulting in a notable 5.6 percentage point’s reduction in employment among individuals aging 16 to 30 with less than a high school education. When taking into account the effect of housing declines, comparative studies across states led to a remarkable finding that employment among young, low-education adults declined by 1 percentage point more in fully bound states than in partially bound states in spite of the fact the latter states’ housing declines were significantly more severe.
For those who still find rising minimum wage a tempting policy option, Seattle’s ongoing ambitious $15 minimum wage project provides an important lesson. The Seattle city council passed a $15 minimum wage law to be phased in over time, with the first increase to $11 an hour from $9.47 per hour taking effect on April 1, 2015. The result? The Seattle metropolitan area experienced 1,300 job losses between January and June, amongst which the loss of 1,000 restaurant jobs in May following the minimum wage increase to $11 per hour in April was the largest one month job decline since 2009 during the Great Recession. And yet, strikingly, over the same period of time, restaurant employment nationally increased by 130,700 jobs (1.2%) and non-Seattle metro area restaurant employment in Washington state increased by 2,800 jobs (3.2%).
There is much that state policymakers can learn from the new study, as well as the developing employment situation in the Emerald City. Minimum wage increases can lead to predictable and negative consequences, including business closings, reductions in employment, reductions in hours and fringe benefits, higher prices for consumers, and reduced options for consumers. Instead of focusing on what might seem like an easy solution, policymakers should instead focus on enacting policies that are more conducive to economic growth, such as repealing overly burdensome occupational licenses or lowering tax rates. Sustainable long term employment and wage growth is possible, but increasing the minimum wage is a poor substitute for a vibrant economy.